Global private hospital operator Ramsay Health Care Limited (ASX: RHC) has provided long term shareholders with extraordinary returns. As the chart below shows, in the last 10 years Ramsay has outperformed the S&P/ASX200 (ASX:XJO) (Index:^AXJO) by nearly 600% and that doesn't even take into account the dividends it has paid during this time.
Source: Google Finance
Ramsay is one of those stocks that always appears expensive and many investors therefore find it difficult to buy. The share price has fallen from its all time high recently and this may be the opportunity investors have been waiting for.
Here are five reasons why I believe any serious long term investor should have Ramsay in their portfolio:
1. Ramsay has a global footprint. It has shown it can operate successfully overseas and now owns 212 hospitals across five countries. While other companies have struggled to export their business model overseas, Ramsay has been able to take advantage of opportunities overseas when growth opportunities have presented and this is likely to be a key driver moving forward.
2. The global demand for healthcare will continue to increase at a faster rate than ever before. The global population aged 60 or above is expected to more than triple by 2050. Longer life expectancies, new technologies and an increasing incidence of chronic diseases will increase the demand for healthcare. These strong industry fundamentals means Ramsay is well placed to take advantage of the future demands of an ageing population.
3. Ramsay has a strong history of growing earnings per share (EPS) and has a positive outlook. One look at the graph below shows how impressive earnings growth has been in the past, and although the past performance may not be an indicator of future performance, management are confident in maintaining the historical growth rate for the foreseeable future.
Source: Ramsay Company Presentation
Ramsay has recently re-affirmed its FY15 earning guidance for EPS growth of between 18-20%. At the current share price, the forecast price-to-earnings ratio is around 30 and although this is a significant premium to the broader market, this can be justified based on the company's track record and strong growth outlook.
4. The private hospital operator has a growth strategy that gives it multiple options for expansion. Ramsay has been successful so far in making acquisitions that have been beneficial to shareholders as well as improving the efficiency of its existing hospitals. The company has also recently undertaken expansions to increase the number of beds and theatre rooms to several of its hospitals that will increase revenues immediately.
5. The increasing cost of healthcare globally will become unsustainable for governments and this should see private healthcare operators carry more of the burden from the public sector. Ramsay is already aware of this and has the potential for more public-private collaborations that would see it manage more hospitals in the future.
Foolish takeaway
Although I don't think the share price is going to rocket up in the next few weeks, I believe any serious long term investors should have Ramsay in their portfolio. There have been very few opportunities to buy the company after a share price fall and the recent drop in the share price may provide an opportunity for those investors who are willing to hold on for the long term.
